The shocking thing about the financial collapse of 2008 is not that Wall Street excesses pushed us into the worst economy crisis since the Depression. It's that the same financial system has been propped back up and that elites are getting richer than ever, while the effects of that collapse are continuing to sandbag the rest of the economy. Oh, and most of this aftermath happened while a Democrat was in the White House.

Despite Michael Lewis's devastating expose of how high speed trading is nothing but a technological scam that allows insiders to profit at the expense of small investors, regulators are not moving to abolish it.

The usual suspects are declaring the housing crisis over, even though default and foreclosure rates in the hardest hit cities and states are upwards of 25 percent.

Meanwhile, back in the real economy, good jobs are far too scarce, incomes are stagnant, while 95 percent of the gains go to the top one percent.

Last month, President Barack Obama belatedly decided that the global climate crisis necessitated action to reduce carbon emission caused by coal. He authorized the EPA to issue draft regulations requiring utilities to cut carbon dioxide emissions from existing coal plants by up to 30 percent by 2030.

With climate change and coal's inherent dirtiness not exactly state secrets, I wondered why the president had waited until a difficult election year, when Democrats in coal states face difficult elections. But Obama's unerring sense of timing is a subject for another day. And these proposed regulations, though an improvement, only scratch the surface of what needs to be done.

The thought occurred: Wouldn't the economic dislocations of a serious effort on climate change be more bearable if the economy were at full employment?

And also: What would it take to finally get us out of the aftermath of the financial collapse?

The answer is pretty straightforward: We need massive public investment in both basic infrastructure and in a transition to a sustainable economy.

We need to finance all of that partially by larger deficits—which will be recovered by improved economy performance—and partially by higher taxes on those billionaires whose activities cause financial collapses.

The right order of magnitude is something like $200-$300 billion dollars a year, for ten years. Not an abbreviated, "timely, targeted and temporary" stimulus like the one Obama sponsored at the pit of the recession, but an ongoing program of economic renewal.

Such a program would create good jobs, incubate domestic technologies, restore rotting infrastructure, make American more resilient in the face of sea level rise, and make the economy more productive and competitive. What's not to like?

Well, if you are the top one percent, obsessing over budget deficits, protecting your financial model and fighting anything that smacks of a tax increase, there is plenty not to like.

And if you wonder why so many Democrats are too timid to pose a robust recovery program for regular people, financed by the very wealthy, the Wall Street connection provides much of the answer.

It's curious: The administration is willing to take on coal states and coal miners, but not bankers. Actually, the number of people making a living from working in coal mines is only about one tenth of what it was at its peak. It's not carbon control that killed those jobs, but automation.

In coal country, that brand of automation destroys mountains, leaves massive open pits, and polluted rivers. The coal companies make more money than ever.

Wouldn't it be useful if public investment could provide decent jobs for people who'd rather not work in mines, and reclaim ruined landscapes and rivers along the way?

Public investment is also the best answer to the latest automation scare. The economy keeps getting richer, but the mix of jobs keeps changing as technology replaces human workers. A public investment program can make that ongoing transition easier to bear.

Isn't this all just utopian? Not at all. As I recently wrote in The American Prospect, we've done this exercise before.

Twelve years after the Great Depression, when the aftereffects of the collapse of 1929 were still sandbagging the real economy, we finally blasted back to recovery with all of the spending from World War II.

We financed it partly by surtaxes on the rich, partly by deficits. And just for good measure, we put the financial economy back in its box, where it usefully stayed for more than three prosperous decades.

The war was, first, a massive macroeconomic stimulus. Unemployment was still more than 14 percent in 1940. Thanks to more than $100 billion of war-production orders in the first six months of 1942—more than the entire gross domestic product of 1939—joblessness vanished. The war also recapitalized industry that had languished during the Great Depression, and it gave government a central place in developing science and technology. The war was not just a huge jobs program but an unprecedented job-training program. President Franklin Roosevelt also chose to use war production to increase the power of unions as full social partners. A company that wanted defense contracts had to recognize its unions. So the war transformed labor markets.

Second, the war altered incomes. Steeply progressive income taxes with marginal rates as high as 94 percent, limits on executive compensation, and strict controls on the bond market led to a compression of the income distribution that lasted more than a quarter-century. The need to finance the war led to emergency measures pegging the rate on government bonds at a maximum of 2.5 percent. The Federal Reserve simply bought whatever quantity of bonds the war effort required. This meant that a major category of financial industry profit -- buying, selling, and speculating in Treasury bonds -- was eliminated, at the expense of the rentier class. Economists even have a name for this process: repression of finance. We could use some of that today.

A side effect of the Good War was enhanced social solidarity, which in turn reinforced political support for egalitarian policies.

We could do all of this again, without the war, and spend the money in a serious green transition that would put people back to work at good jobs.

Comments

Well, I think we don't have to safeguard against sea level rise just yet, though maybe in the next 50 to 100 years.

But I have to say, while being a good liberal, I think this article doesn't deal with our considerable national debt of $17.5 trillion which is now more than 100% of US GDP. Arguing for raising the deficit to boost the economy of regular people, especially after we spent $1 trillion on military operations in Iraq and Afghanistan, is very liberal. I just read a Pew Research poll that said while only about 30% of Americans think Congress should do something to address climate change, about 70% thinks Congress should pass deficit legislation. So, if the poll is correct, you're swimming up stream against most Americans with that suggestion. Though I wish there was more public interest in really making the necessary changes to reduce pollution and CO2 emissions. As I said, I'm a liberal, but I think we should try to con the public into a gasoline tax/carbon tax by using the revenue to pay down the deficit or the debt. Thanks for the article. David Maxwell Fine, Toledo, Ohio

Anybody here really object to a Congress that is just waiting for you (the 99%) to come and tell it what you want it to do that day? You just need (collectively) the same finance level and the same lobbyists level …

… David Broder, late dean of the Washington press corps said that when he came to Washington in the 50s (?) the lobbyists were all union …

and 99% of the votes.
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Just had an idea. Nobody understands what really happened with the Luddites and the steam looms.

According Thompson’s The Making of the English Working Class the individual weavers who preceded the steam loom era operators made a decent living — unlike the 100X more productive power loom operators who were reduced to feeding their families oat cakes three times a day because they could not even afford wheat bread — in what I call the segregated or subsistence-plus (no plus if you are on oat cakes three times a day) labor market (segregated from maxing what consumers would be willing to pay).

What nobody thinks of is that if the steam loom operators could have withheld labor from ownership they could have demanded more than the weavers ever got and they would have done just fine.

PS. According to Thompson the Luddites only destroyed the power looms of the lowest paying operators.

The level of inbreeding between both parties and Wall Street is truly frightening. Even more frightening is that this coupled with SCOTUS and Congress scuttling any and all efforts to "reform" Wall Street ( whatever that means), there's very little we the people can do to win this fixed game.

Since 2008 the nation is $24.5 trillion wealthier, that brings the average household savings to $670,000. It added $200,000 to the average, it added $76,000 to every citizen's savings -- on average. (See Federal Reserve Bank Flow of Funds report, page 2.) Most of the average went to wealthiest 1% or 5% or 10%. $24.5 trillion is nearly double the publicly held national debt: $12.6 trillion. We could tax financial transactions. We could return top income tax rates to what they were for 40 years, 1940 to 1980. We could eliminate the tax deduction to financial corporations on loan interest paid out, estimated at over $77 billion a year by Rep . Jan Schakowsky. She also would tax dividend and capital gains income at normal rates, savings $88 billion a year. And she would cut "defense" spending by $110 billion per year. And that would fund Kuttner's $200 billion a year public jobs proposal, or the Congressional Progressive Caucus plan of 3 years of $450 billion on public jobs. It would balance the budget, tighten the labor market and raise income for 80% of all families. We can afford this, all households have $670,000 in savings. See Schakowsky budget: https://secure.mydccc.org/o/30047/images/Schakowsky%20Deficit%20Reduction%20Plan.pdf

About the Author

Robert Kuttner is co-founder and co-editor of The American Prospect, a professor at Brandeis University's Heller School, and a distinguished senior fellow of the think tank Demos. He was a longtime columnist for Business Week and continues to write columns in TheBoston Globe. He is the author of Obama's Challenge and other books.